Local advisers: It's all part of investing

When looking at the big picture, two Petoskey investment advisers didn't see Tuesday's stock market pullback as a major anomaly in the investment process.

Balky Grannis, senior vice president at Raymond James & Associates' Petoskey office, said the surprising aspect of Tuesday's market drop was that it hadn't occurred earlier.

"The market had a significant rise since last summer, so a pullback was not a surprise," he noted.

Dan Ledingham, a Petoskey-based representative for Edward Jones, noted that through the past century or so, there have been 355 daily drops in the Dow Jones Industrial Average amounting to 5 percent or more - and that Tuesday's pullback - with the Dow closing at 12,086,06, down by 416.02 for the day - didn't reach that magnitude.

"It doesn't even qualify for what they officially call a dip," he said. "In the market decline itself, this is really a normal part of the investing process."

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Rather than being a "dam is broke, head for the hills"-type of occurrence, Grannis believes Tuesday's pullback should remind investors to carefully review their portfolio mix and the risk levels associated with their holdings.

Grannis has noticed a tendency among some investors to forget the market downturn of 2001-02, and to pursue higher potential returns without taking into account the potential for higher risks.

"It should be a wake up call to people to ensure that their portfolios have appropriate levels of risk," he said.

Computer glitches which served to magnify Tuesday's downward trend also have potential to serve as a wakeup call, Grannis said, raising questions about a push toward total electronic trading.

Noting that Tuesday's drop wasn't accompanied by major changes in politics or the world situation, Grannis expects that "this volatility is not over."

On Tuesday, Grannis found himself "extraordinarily busy" fielding inquiries from clients. A common piece of advice he offers during such conditions is that "you don't sell into that collapse, period."

Before deciding their next step, he encouraged clients to shut off the media reports, take a breather and think through the situation.

Ledingham said his clients - who tend to focus on "buying quality investments and holding for the long run" - didn't seem particularly shaken by Tuesday's events.

By taking a "buy and hold" approach over the past 10 years, Ledingham noted that clients typically could have achieved an annual return of 8.4 percent. Had they been out of the market for its best 40 days, he noted that they potentially could have lost half their investment.

"It's not timing the market, it's time in the market," Ledingham said.

Ledingham sees Tuesday's drop in Asian markets as a major factor in the Dow's descent for the day. U.S. economic data for the fourth quarter of 2006 - which didn't turn out as robust as some expected - may have played a part as well, he added.

Ledingham also sees potential for Tuesday's pullback to serve as a wakeup call for those with an overly aggressive, insufficiently diverse portfolio.